Successful companies don’t always need to target large markets. In some cases, a very narrow focus on a small niche market can also lead to huge profits.

It certainly has for Alexion Pharmaceuticals, Inc. (Nasdaq: ALXN).

The company’s blockbuster drug, called Soliris, received FDA approval in 2007 and now accounts for more than $2 billion in annual sales (Annual net income now averages an impressive $600 million).

#-ad_banner-#Soliris doesn’t target a leading malady such as diabetes or high cholesterol. Instead, this drug is aimed at people with very rare genetic blood disorders, which cause the body to destroy its own red blood cells.

If these disorders sound deadly, it’s because they are. Left untreated, they’re highly likely to kill within five years of diagnosis.

But those affected can live a normal life with proper therapy, and at present Soliris is the only option. Like many rare-disease treatments, the drug carries an eye-popping price tag:currently $400,000-to-$500,000 a year per patient. Since these patients can’t survive without Soliris, governments and other third-party payers are typically willing to shoulder the cost, ensuring blockbuster status for the drug year after year.

Alexion should remain unopposed in this exceptionally profitable niche for four or five more years. It’ll be at least that long before any viable competitors to Soliris reach the market, predict analysts at Sanford C. Bernstein & Co.

Annual sales of Soliris could reach a peak of about $5 billion during that time, as new treatment candidates are identified and indications are expanded, Morningstar analysts say. For example, the drug is being evaluated as a treatment for two severe neurological conditions and as an anti-rejection agent in kidney transplant recipients.

In addition, Alexion is testing a couple of next-generation Soliris formulations that could further improve treatment of the rare blood disorder mentioned earlier. The new formulations have also shown promise against certain life-threatening autoimmune diseases.

However, the firm knows it won’t always be able to rely solely on Soliris for growth and is wisely using some of the profits from the drug to expand its pipeline. Here, too, the focus is on lucrative niche markets. One of them is a rare and lethal cause of bone deformity that only affects one out of every 100,000 people. Strensiq, the drug that Alexion is developing for the disorder, is expected to be approved by the FDA later this year.

So is Kanuma, a medication that Alexion will own when it closes a recently announced buyout of Synageva BioPharma Corp. (Nasdaq: GEVA). Synageva developed Kanuma for a rare and previously untreatable genetic disease that causes a fatty buildup in the body, especially the liver and blood vessels. The disease, which occurs in just two or three out of every 100,000 people, can kill very quickly and often results in the need for a liver transplant.

Strensiq and Kanuma both have the potential for annual sales of $1 billion or more, analysts say.

Other products in the pipeline include a unique anti-inflammatory medication and a promising new treatment for a rare metabolic disorder. Based on progress to date, Alexion could be awarded as many as seven new indications or product approvals through 2018, management says.

To be sure, there are some financial boulders in Alexion’s path. For one thing, the company is paying a hefty premium (more than $8 billion) for Synageva, though the deal should ultimately be well worth the cost.

Also, operating expenditures are mounting to meet the needs of an expanding product pipeline. At $543 million, for example, annual R&D outlays are more than double 2012 levels. Sales, general and administrative costs of $688 million a year are nearly 80% higher than in 2012.

Thus, financial results are bound to suffer in the near-term, with significant bottom-line shrinkage projected for the third quarter and for 2015 overall. However, profits should begin to accelerate quickly again next year, particularly as sales of Strensiq and Kanuma ramp up and Soliris-related revenues continue their ascent. These and other developments position Alexion for mid-double-digit profit growth over the coming five years, analysts project.

Risks To Consider: As good as Alexion’s pipeline looks, it may not generate as many additional Soliris indications or new-product approvals as management expects. Also, there’s no guarantee that third-party payers will continue to cover extremely expensive rare-disease medications at current levels; reimbursement could be reduced or eliminated.

Action To Take –> The market has been shying away from Alexion lately, mainly because of overblown concerns about the potential for new competition and the transient decline in profits that I described. As a result, the firm’s stock is nearly 8% off the all-time high of $203 a share set back in December. Further pullbacks could occur as projected earnings weakness manifests.

But savvy investors will view such events as buying opportunities. With an iron grip on one fruitful niche market and promising prospects for similar domination elsewhere, Alexion — and its stock — should have plenty more room to run.

Oftentimes the little ideas are the big game changers — something like stranglehold on the treatment for a rare disease. My colleague Andy Obermueller devotes his time to identifying game-changing trends and the companies that should benefit from this. This has led readers to investments that went on to gain triple-digits.

More recently, Andy has been talking about the profit potential for Apple’s newest technology Apple Pay — and more importantly the company’s key suppliers. If you haven’t heard about this opportunity yet, then I urge you to check out his comprehensive report on how to profit from this technology, by clicking here.